California Organized Investment Network (COIN) Is a Collaborative Effort Between the California Department of Insurance, the Insurance Industry, Community Affordable Housing and Economic Development Organizations, and Community Advocates.

The Investigation Division investigates suspected fraud committed by insurance agents, brokers, public adjusters, bail agents, insurance companies and other individuals and entities transacting the business of insurance who perpetrate fraud against consumers.

Report of Dividend

To: All California Domiciled and Commercially Domiciled Insurers; other interested PartiesFrom: State of California Department of InsuranceBulletin No: 93-6Date: October 29, 1993

Subject: Dividend Reporting - New Requirements

The purpose of this bulletin is to advise that pursuant to recent legislation (SB 482, Chapter 974, approved by the Governor on October 9, 1993), all California domiciled and commercially domiciled (commercially domiciled as defined in Ca1ifornia Insurance Code CIC Section 1215.13) insurers must comply with new reporting and notice requirements for dividends and distributions (hereinafter "dividends"). A further purpose of this bulletin is to notify you, in accordance with the amended law, of the office to which dividend notices must be delivered.

Numerous changes to California insurance law were made by S8 482; however, this bulletin is only intended to draw your attention to the provisions of the legislation which refer to the definitions and reporting requirements for dividends (CIC Sections 1152, 1215.4, 1215.5, and 10530).

Subdivision (f) of CIC Section 1215.4 was amended to change the reporting requirements from, "...report all dividends and other distributions to shareholders promptly upon the declaration thereof" to, "…report all dividends and other distributions to shareholders within five business days following declaration. No dividend or other distribution to shareholders may be paid until at least 10 business days* after receipt by the commissioner, at the office of the department prescribed by the commissioner by notice to all insurers, of a notice of the declaration of the dividend or other distribution."

You are hereby advised that any inconsistent or alternative methods of reporting dividends found in the California Code of Regulations were automatically superseded and repealed by the passage of SB 482. You are also advised that failure to comply with the amended law by not reporting ordinary dividends "within five business days following declaration" and "at least 10 business days" prior to payment shall subject the violating insurer to the late filing fee provisions of CIC Section 1215.10(a), which late filing fees are currently $530 for the first month or any fraction thereof and $638 for each subsequent month or fraction thereof. The imposition of late filing fees does not preclude the Department from requiring an insurer to cause any dividends to be returned to it if the Department determines that the payment of such dividends are unlawful or create a hazard or potential hazard to policyholders.

Note that the prior notice/prior approval requirements for "extraordinary dividends" found in Subdivision (c) of CIC Section 1215.5 remain unchanged. However, the threshold for "extraordinary dividends" for insurers other than life insurers has been amended from "the greater of (1) 10% of such insurer's surplus as of the 31st day of December next preceding or (2) the net investment income, if such insurer is not a life insurer, for the 12-month period ending the 31st day of December next preceding" to "the greater of (1) 10% of such insurer's surplus as of the 31st day of December next preceding or (2) the net income, if such insurer is not a life insurer, for the 12-month period ending the 31st day of December next preceding" (emphasis added). Furthermore, title insurers are no longer exempt from the provisions of CIC Section 1215.5(c).

Attached to this bulletin is the form of the notice which shall be used to comply with the dividend reporting requirements of CIC Sections 1215.4(d) and 1215.5(c), as amended. No fee is required for submittal of the notice.

Finally, you should familiarize yourself with the amendments made to CIC Sections 1152 and 10530, sections which, in part, define legal dividends. Dividends may now only be paid out of earned surplus excluding unrealized gains.